Korean Phone Fickleness Is Hard on Carriers

South Korea has among the highest turnover of mobile phones globally, but that’s no reason to celebrate for the country’s carriers.

Last year, over 28% of the country’s mobile phone users changed their phones after less than a year of purchase, amped up by the steep discounts offered by carriers, a local telecommunications firm said in a recent report.

But the carriers haven’t gained as the “unnecessary” phone switching only increased their marketing costs, KT Corp.’s DigiEco research unit said.

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The country’s top three carriers–SK Telecom Co. Ltd., KT and LG Uplus Corp.–are competing fiercely with each other to woo customers in a country where the number of subscribers exceeds the population.

Last year, the carriers subsidized the price of Samsung Electronics Co.’s Galaxy S3 smartphone by more than 80%, illustrating the extent of discounts they are willing to offer.

Still, their efforts have proved futile as none of them has gained any meaningful market share in recent years, although higher marketing costs have dragged their average earnings before interest, tax, depreciation and amortization margin down by 9.4% to 29.5% from 2005 to 2011, the report said.

The race to gain an edge with the fastest network and the widest coverage has also kept capital expenditures higher than the developed world average, the report says. In 2011, the capex margin for South Korean carriers stood 5% higher than the average of the 34 members of the Organisation of Economic Co-operation and Development.

Thanks to the heavy subsidies, South Korea also ranks No. 1 in the world in smartphone adoption. More than two-thirds of South Korean subscribers own a smartphone and a similar number also bought a new phone in the last calendar year, according to Strategy Analytics.

Analysts called smartphones a “commodity” in the South Korean market, adding that the competition will move smartphones down to the budget segment. The listed price for the Galaxy S3 has come down 40% since its release, according to the analysts.

A spokesman for SK Telecom said the firm “hoped to compete on service quality” given the slowing market. SK Telecom has over half the market share in South Korea.